The Eurogroup-Greece Agreement

The agreement reached Friday, February 20th between Greece and the Eurogroup has led to conflicting commentary. It is necessary, in order to understand this agreement, and to analyze it, to put it into context, both in the short and in the long term.

This agreement was intended to prevent an immediate crisis, created by the election of the government of Alexis Tsipras less than a month ago. In addition, this agreement deserves to be observed under the microscope.

Greece has achieved several things:

Greece is no longer required to achieve a primary budget surplus of 3% this year. Only budget balance is required.

The “contract” which runs over four months is explicitly designated as a transition to a new contract, which of course remains to be defined.

The ‘Troika’ no longer exists as an institution, although each component continues to exist. Thus it is the end of the ‘men in black’ coming to dictate terms to Athens.

Greece can now write it own agenda of reforms, and she’ll write them herself. The institutions will give their opinion, but they will not be able make particular reforms an urgent requirement for Athens.

A more discreet advantage is that the Greek Government has broken the Eurogroup’s facade of unanimity and forced Germany to unveil its position.

However, Greece has agreed to recognize – for the moment – all of its debts. There has been no progress on this, and no sign of a change of attitude by Germany.

Limited success

But this success is limited. In four months, at the end of June, the Greek government will again be faced with the Eurogroup, and this time, it will not be an easy negotiation. The Athens government will propose reforms, and it is likely that these will propose taxes on the privileged, and conflict with the Eurogroup and Germany will further grow. Indeed, Germany cannot budge, nor the Greek government. This implies that we are moving towards a new confrontation, unless by then an anti-German “alliance” emerges. That’s the Tsipras’ hope, but here he is wrong. The French and Italian governments have bought into German ideas.

Yet the idea of ​​using the sums allocated for the debt repayment (principal and interest) to revive the Greek economy, expand investment, fell to a record low, is sensible.

Chart 1

Evolution of investments in Greece.

The fall in productivity (in addition to the production) is the indicator of the fundamental failure of austerity policies

Chart 2

Evolution of labour productivity in Greece

Similarly, to take emergency humanitarian measures is just, but is diametrically opposed to the creditor logic defended Germany.

Preparing to leave the Euro

Better to use these four months-won to prepare for the inevitable, ie to Euro exit. Whatever the negotiating strategy of Greece, and the one designed by its Minister of Finance Yanis Varoufakis is excellent, we must question the purpose of this negotiation. In fact, Greece cannot get things that in the current political context are contradictory. It cannot be released from paying its debt (at least some of it) and keep the Euro. The paradox that a Greek exit from the Euro zone, due to the induced effects it will produce, will quickly end either the Euro or German-led austerity policies. But for this, Greece must leave the euro.

Greece has four months to prepare for it, to convince people that such an outcome is inevitable, and in fact this outcome will represent progress. It is likely that this also involves changing the Minister of Finance. Not that Yanis Varoufakis is unworthy, far from it. But he will have to wave the flag and articulate the new strategy of Greece such that it will be taken seriously. The appointment of men and women known for their negative views about the Euro would be a strong signal that it is properly prepared for a confrontation.